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How to deal with the death of a family member

Lay executors can undertake the role themselves or instruct professional advisers to assist them.

Even where tax planning has not been undertaken by the deceased, there may still be opportunities after the death.

One of my clients Sally Baker had called me a couple of weeks ago to let me know that her father Charles Smith, a widower, had sadly passed away. I had already prepared tax efficient wills for Sally and her husband but she had never persuaded her father Charles to review his inheritance tax planning. Nonetheless, Sally had located her father’s will from a number of years previously and discovered that she is appointed as the sole executor and beneficiary of her father’s estate. I advised her to deal with the immediate issues of registering the death and arranging the funeral and then we agreed that she would come into the office to discuss this further.

In our subsequent meeting, I advised Sally that the steps needed to deal with a probate are briefly as follows:

On a practical level, Sally will need to ensure that her father’s assets are secure ie, that any valuable items are not left in an empty house and that adequate insurance is in place. She should arrange for any unnecessary services to be cancelled and the necessary organisations to be notified of his death (any benefits, pensions etc). It is practical to arrange for post to be redirected.

As executor, she has a duty to determine the exact extent of her father’s estate at the time of his death, which will involve obtaining valuations of assets from the necessary professionals and obtaining details of any liabilities.

For example:

properties, investments and personal belongings must be valued at the price they would attract on the open market;

values of bank and building society accounts can be obtained by writing to the necessary organisations;

Sally should consider whether her father was the life assured under any life policies or was a beneficiary under any trusts;

she will need to arrange for her father’s income tax to be calculated up to the date of his death;

she should check whether her father was over or under paid on any pensions, benefits and allowances;

she should check whether there were any unpaid amounts on utilities, credit cards etc at the time of his death; and

Sally should advertise for any unknown creditors (in the manner prescribed by law) to protect herself, as executor, from any claims in the future.

Once the extent of the estate has been determined, the probate papers can be prepared with a summary of the estate. These may need to be submitted to HM Revenue & Customs for tax clearance, depending on the complexity of the estate.

Sally and I discussed values and she estimated that her father’s estate is worth in the region of £550,000. She told me that her mother (who died five years ago) left all of her estate to Charles, in which case I advised her that her father’s estate should have the benefit of two nil rate bands (being £650,000) so there should be no inheritance tax to pay.

I told Sally that the next step would be to obtain a “Grant of Probate” from the Probate Court (using a sworn Executor’s Oath, the probate papers and the original Will), which can then be used to obtain title to the assets. Any property and assets should be sold (unless she wishes to retain them as beneficiary) and cash paid into an executor’s bank account (or a solicitors’ client account). She must arrange for any liabilities at the date of death to be settled as well as any administration expenses, which include funeral expenses, professional fees and income or capital gains tax arising during the period of administration.

Once Sally, as executor, is in a position to distribute assets to herself as beneficiary, the administration period can come to an end. Ideally, I explained that she should prepare “Estate Accounts” to ensure that everything has been dealt with appropriately and that the figures tally.

Sally and I discussed that, as executor, she is entitled to instruct a professional to help her with some or all of the above duties. She said that now she has a better idea of what is involved she will go away and consider how much of this work she wishes to do herself. I confirmed that I would be happy to be involved with as much or as little of the process as needed.

On another issue, as I have previously dealt with Sally’s will, I know that she is independently wealthy and has an inheritance tax issue of her own. Instead of admitting approximately £550,000 worth of additional assets to her own estate, I advised Sally that she could put in place a deed of variation to direct these assets into a discretionary settlement. She could be one of the trustees of this settlement and also one of the beneficiaries. For inheritance tax and capital gains tax purposes, the gift would be treated as if it had been made straight from her father’s estate to the discretionary settlement, so while Sally could have access to the funds if necessary, they would not form part of her estate while they remained in trust.

Sally loved this idea as it would enable her to undertake some more planning with her personal assets, secure in the knowledge that she had access to another pot of money if necessary. She can also use some of the funds for the benefit of her children, without having to worry about living for seven years.

Sally and I agreed to talk in a couple of days once she has had a chance to make a decision about her options.